Public Bill Committee

[Mrs. Joan Humble in the Chair]

Clause 36

The renewables obligation

Question proposed [this day], That the clause stand part of the Bill.

Question again proposed.

Joan Humble: I remind the Committee that with this we are taking the following: New clause 6—Feed-in tariffs—
‘(1) The Secretary of State may by regulations make provision to introduce feed-in tariffs for renewable micro-generation and decentralised energy.
(2) In this section—
“feed-in tariffs” means a requirement on utilities to buy electricity from renewable sources at a feed-in rate to be set by the Secretary of State, dependent on available renewable technology;
“micro-generation” means any generation under 250kW;
“renewable energy” means any form of energy produced in the generation stage without using fossil fuels or emitting carbon;
“a feed-in rate” means a guaranteed payment by the energy suppliers for each kilowatt of electricity generated.’.
New clause 8—Feed-in tariffs (No. 2)—
‘(1) The Secretary of State may make regulations for the purposes of requiring designated electricity suppliers to purchase the electricity generated from renewable sources by small-scale generators (“feed-in tariffs”).
(2) For the purposes of subsection (1)—
(a) “small-scale generators” are persons generating electricity below a level to be determined by the Secretary of State following consultation,
(b) “renewable sources” are such energy sources as may be determined by the Secretary of State following consultation,
(c) “designated electricity suppliers” are those persons licensed by the Secretary of State to supply electricity as set out in section 6 of the Electricity Act 1989.
(3) The Secretary of State must consult for the purposes of determining the appropriate form of regulations as set out in subsection (5) below and must—
(a) commence such consultation within a period of six months of the day on which this Act is passed,
(b) determine a reasonable period of consultation,
(c) consult with—
(i) designated electricity suppliers,
(ii) the National Consumer Council (incorporating energywatch),
(iii) the Gas and Electricity Markets Authority (“GEMA”),
(iv) the National Grid,
(v) such generators of electricity from renewable sources as he considers appropriate,
(vi) such environmental organisations as he considers appropriate, and
(vii) such other persons as he considers appropriate.
(4) The Secretary of State shall, within six months after the end of such consultation, make regulations for the purpose of bringing into effect feed-in tariffs pursuant to subsection (1), in such manner as the Secretary of State shall consider appropriate.
(5) The regulations mentioned in subsection (4) above must—
(a) define the renewable sources in respect of which feed-in tariffs shall apply,
(b) define the maximum level of electricity generation in respect of which feed-in tariffs shall be available, as referred to in subsection (2)(a) above,
(c) define which persons generating electricity from renewable sources shall be eligible for feed-in tariffs,
(d) prescribe the means by which tariffs applicable under feed-in tariffs are to be calculated and, where necessary, amended,
(e) prescribe, where appropriate, the terms and duration of the feed-in tariff arrangements,
(f) make provision for the payment and incidence of the costs of connection of relevant small-scale generators to the National Grid,
(g) make provision for the regulation of feed-in tariff arrangements by a designated body,
(h) make provision for the Secretary of State to report periodically on the effectiveness of the regulations made under subsection (1) in achieving their objectives,
(i) provide for the making of any necessary amendments to distribution licences or supply licences held by any person, and
(j) make such changes as may be necessary to existing legislation, including that providing for the Renewables Obligation Order.’.
New clause 14—Tariffs for renewable energy—
‘(1) The Secretary of State may by order impose on each energy supplier falling within a specified description (a “designated energy supplier”) an obligation to reimburse producers of renewable energy falling within a specified description (a “renewable energy producer”) for each unit of renewable energy produced as set out in subsection (4) (and that reimbursement rate is referred to in this section as a “renewable energy tariff”).
(2) The descriptions of energy supplier upon which an order may impose the renewable energy tariff are those supplying electricity or gas—
(a) in Great Britain;
(b) in England and Wales; or
(c) in Scotland,
excluding such categories of supplier as are specified.
(3) In this section—
“renewable source” has the same meaning as in the Utilities Act 2000 (c. 27);
“renewable energy” means energy from renewable sources;
“renewables obligation” means the obligation specified in section 32 of the Electricity Act 1989 (c. 29);
“specified” means specified in the order.
(4) The renewable energy tariff shall set the reimbursement level for each kilowatt hour of energy produced by the renewable source and may—
(a) be set at different levels for different types of renewable source,
(b) be varied at different times as prescribed in the order or in successive orders.
(5) The order shall set out—
(a) the renewable sources in respect of which renewable energy tariffs shall apply,
(b) the tariff applicable to each renewable source,
(c) which installations shall be eligible for renewable energy tariffs, and any provisions to exclude installations accredited under the renewables obligation,
(d) which renewable energy producer shall be eligible to receive renewable energy tariffs,
(e) which designated energy supplier shall be responsible for paying the renewable energy tariff to a particular renewable energy producer,
(f) the terms and duration of the renewable energy tariff arrangements,
(g) how the amount of energy produced and upon which the renewable energy tariff is payable shall be measured, determined or deemed,
(h) provisions for the regulation of renewable energy tariff arrangements by a designated body,
(i) provision for the Secretary of State to report periodically on the effectiveness of the regulations made hereunder,
(j) any necessary amendment to distribution licences or supply licences held by any person, and
(k) such other provisions as may be required for the efficient and cost-effective operation of the renewable energy tariff.
(6) Before making an order, the Secretary of State must consult—
(a) the Authority,
(b) the energy suppliers to whom the proposed order would apply,
(c) representatives of renewable energy producers to whom the proposed order would apply, and
(d) any other persons he considers appropriate.
(7) An order under this section shall not be made unless a draft of the statutory instrument containing it has been laid before, and approved by a resolution of, each House of Parliament.’.

Malcolm Wicks: Welcome to the Chair, Mrs. Humble. I was addressing a question from the hon. Member for Cheltenham. The rate of compliance for the renewables obligation between 2005-06 and 2006-07 raised a query in his mind about the delivery of less generation. However, that is a technical one-off effect of the tightening of the cap on co-firing. It will be rectified by the reforms that we propose to introduce through the Bill. We are making the RO more efficient and effective, thereby driving faster and wider deployment. If he would like a more technical explanation, I am happy to give him one in writing if that would be appropriate.

Martin Horwood: I am grateful for the Minister’s response. I was not aware of that effect. If it is the true explanation for the shortfall this year and it is a one-off effect, that is encouraging, but I would not mind, as well as the technical explanation that he has promised me, an analysis of the percentages over the past five years or for as long as the renewables obligation has been in existence, so that we can establish whether there is a trend.

Malcolm Wicks: I wonder whether one issue in the hon. Gentleman’s mind is that there is something known as headroom in the renewables obligation, so we are always setting a percentage figure somewhat higher than where we actually are. That is how we incentivise people to come forward with investment, but I am happy to supply any other information that I can to the hon. Gentleman.
The hon. Member for Northavon, who is not here this afternoon, referred to “Rock Around the Clock”—I think that we have had the last of those jokes now. He was the second speaker on the Liberal Benches this morning, so he was very much the Comets to the hon. Member for Cheltenham’s Bill Haley.
The hon. Member for Northavon asked what the criteria were for establishing the bands. Bands were set on the basis of criteria in proposed new section 32D(4) of the Electricity Act 1989. In particular, the cost data came from a study by Ernst and Young, but we also took into account other criteria, including the cost to consumers. We have also paid heed to the results of our recent consultations on proposals, which supported a limited number of bands. Consultation has led to some minor changes to the bands to which he referred.

Martin Horwood: I am sure that my hon. Friend the Member for Northavon, who apologises for not being present this afternoon, will be grateful for the information that the Minister has given, and I am sure that the consultation was right about having a relatively simple framework of bands. That is obviously desirable, but is the study by Ernst and Young in the public domain? If so, can it be supplied to all members of the Committee?

Malcolm Wicks: I am advised that the study is in the public domain. I will ensure that, in the most practical way, it is available to members of the Committee.
The hon. Member for Northavon also asked whether a European super-grid was a good idea. Given the development of offshore wind in a number of member states and the European target for 20 per cent. of all our energy to come from renewables by 2020, a super-grid is an interesting long-term idea. Obviously, it raises a range of regulatory and other issues. I have personally discussed those ideas with Mr. Adamowitsch, who is the EU offshore wind co-ordinator. I can see why the hon. Gentleman might smile at the idea of Brussels having such a co-ordinator, but Mr. Adamowitsch is a distinguished former Energy Minister from Germany. He visited the UK last year and we discussed those matters.
The purpose of the offshore transmission regime, which we will discuss next, is to enable transmission of the significant amounts of electricity generated from offshore renewables in offshore waters—offshore wind, but potentially also wave and tidal—to the Great Britain grid, to meet our renewable energy targets.

Charles Hendry: I am fascinated by the mention of Mr. Adamowitsch. Only the Germans could try to co-ordinate wind; it is a fascinating challenge. Will the Minister clarify how the super-grid will be considered? If the area where the wind energy was generated was part of British territorial waters, but the energy happened to be used in Denmark or Holland, for example, would it count as part of their renewable quota or as part of our renewable commitment?

Malcolm Wicks: I cannot give a definitive answer, as this is just a pipe dream at the moment—or a wind dream. No doubt, those questions would have to be considered. At present, there is debate about what counts towards hitting the 2020 European target. I hope that if there was a super-grid, which would no doubt sometimes be sending electricity one way and sometimes another way, we would come to some sensible arrangement about how it was chalked against the different national targets. I assume, although I do not want to suggest that this is the definitive answer, that if electricity came from a wind farm in British territorial waters it would count against our own target, but it is too early to make a judgment about that.

Stephen Ladyman: I do not know whether the Minister has the answer to this question—

Malcolm Wicks: Do not ask then.

Stephen Ladyman: This discussion has brought to my mind the fact that my constituency is largely powered by French electricity because we buy it from French generators. How do they take account of energy that they produce renewably and sell to us in south-east England?

Malcolm Wicks: That question illustrates the complexity of the issue and I am grateful to my hon. Friend.
As an aside, from time to time I take refuge on the island of Alderney, one of the Channel Islands. My wife is a native of the island, which has ambitious plans for tidal power. My way of relaxing away from the UK is to discuss tidal power with the people of Alderney. I mention that because of another little complexity: as every schoolgirl knows, the Channel Islands are not part of the United Kingdom and are actually not part of the European Union.

Stephen Ladyman: Will my hon. Friend give way?

Malcolm Wicks: Of course. I am not very good on the Isle of Man, so please do not ask about that.

Stephen Ladyman: I cannot help but point out to the Committee that I have seen a photograph of my hon. Friend in the Minister’s office in Alderney. They were old school friends and the Minister was in short trousers in the photograph.

Hugo Swire: I, too, pay tribute to Alderney. I have been to Fort Clonque, an excellent place where I ran into Duncan Goodhew, the swimmer, at the airport—he must know a lot about wave power.

Malcolm Wicks: Absolutely.

Joan Humble: Order. We have had enough of Alderney now.

Malcolm Wicks: For the record, I was in my short trousers when I was the school’s 100 yards champion; it was not during a later period.

Charles Hendry: I am not interested in swapping holiday stories with the Minister, but I am interested in whether he can give us some more clarity about the exporting issue. When we discussed it this morning, he said in relation to renewables obligation certificates that if the energy was generated in the UK and sold to a company in the UK, it could be exported through the interconnector to France or wherever. Through the super-grid that would not necessarily be possible, because it would be sold directly from the super-grid to a country abroad. I realise that he may not have the answer now, but I know that he is promising to send me a tome, or a long letter, so perhaps the information could be included. In the responses we have had from the Minister there is a lack of clarity about how the process would work.

Malcolm Wicks: To be fair, electricity from various sources will go into the grid, and some may then go to another country, but we cannot colour the electricity from renewables green and trace it. We certainly need to work through the issues that the hon. Gentleman raises, but we cannot track renewable electricity electrons through the system, which is why we have renewables obligation certificates to help track renewable electricity. We should not get too insular about it, however, because we are signed up to a Europe-wide target. At the end of the day, the objective is that Europe should hit its renewables target, and we no doubt need to work together in all sorts of ways to achieve that.
We have three new clauses before us, which have been moved by Labour Members, Liberal Democrat Members and Conservative Members respectively. Although they all focus on renewables, they focus particularly on microgeneration and the virtues of a feed-in tariff system, and I shall now address those issues.
In the context of the EU 2020 renewable energy target, the issue of how we increase the deployment of renewable energy has become ever more urgent, as these debates have shown. We certainly recognise that the issue represents a major challenge, and work has already begun to identify the actions and measures that will help us to achieve our share of the EU target. There is no doubt that we will need significant deployment of different renewables and generating stations of all sizes, from large offshore wind farms, such as the future London Array, which we expect to be the world’s largest wind farm, at 1 GW, to smaller, local generation, which can be below 10 kW.
New clause 14 would introduce a feed-in tariff for all sizes of energy generation. Feed-in tariffs are sometimes presented as a kind of magic bullet that will solve the real or imagined problems of the renewables industry. I do not believe that is true, and accepting the new clause at such a crucial point in the development of the renewables obligation would send entirely the wrong message to industry. It could damage investor confidence and result in significant delay to projects coming online.
Throughout the debate about the rights and wrongs of any support mechanism, we must not overlook the success of the renewables obligation so far. Renewable generation has almost trebled since its introduction in 2002, and the reforms in the Bill will triple it again by 2015. However, the delivery of more capacity is not simply a matter of the financial support mechanism; a broad range of factors is at play—not least the planning system—and we are working hard to address them all.
We must also be careful when making comparisons with other countries. Most continental feed-in tariffs operate on the basis that there is a vertically integrated network operator that can be obliged to offer a tariff. That, of course, is not the case in the UK, where suppliers are separate from the network operators. That separation allows suppliers to choose where they buy their energy, which in turn drives efficiency and innovation. That does not fit well with a more rigid system in which the Government, in essence, fix the price. Simply imposing on suppliers an obligation to pay a tariff will not guarantee that we have an effective support mechanism for the UK market.
People sometimes talk about feed-in tariffs as though they were cost-free, but that is simply not the case. As with any support system, there are cost implications. In 2007, the International Energy Agency published estimates for Germany. Between 2000 and 2012, the German feed-in tariff regime will result in payments of €68 billion, of which between €30 billion and €36 billion will be the additional costs of renewables. By 2012, the annual cost will be between €8 billion and €9.5 billion. Solar photovoltaics will provide 4.5 per cent. of Germany’s renewable electricity, while taking 20 per cent. of total payments. Those important figures should enter our debate, which is why I asked the hon. Member for Cheltenham whether he had any financial information for us. Such things need to be factored in.

Martin Horwood: The Minister raises important questions about public practice and how the system would work in a liberalised energy market such as we have. They are perfectly fair points. However, none of the new clauses oblige the Government to replace the renewables obligation wholesale with a feed-in tariff system tomorrow. The kind of costs he mentioned for the established system in Germany—a rather larger country—do not apply in this case. This is about enabling powers to allow him, through two of the new clauses, to introduce feed-in tariffs aimed at decentralised energy and microgeneration initially on a much more modest scale and cost to the public finances. He is being a little unfair in citing those numbers.

Malcolm Wicks: Of course, I am coming to that. I make those points because part of the naivety of the debate—not necessarily in Committee but generally— somehow suggests, “Britain bad, Germany good: good old feed-in tariffs”. However, everyone would recognise that the costs that I have cited are very considerable.
Part of the debate about energy policy in Britain is to inform the public and ourselves that, at a time of rising global energy prices, we are now, perfectly properly, adding to those prices because of the environmental measures that we take. That could be at European level through the emissions trading scheme or through renewables obligations and so on. We must look at the price impact on the customer—something that is often not done during the debate. A feed-in tariff regime underestimates the costs of renewables. Unlike the RO, a feed-in tariff regime covers only the costs of the generator and it imposes other costs on the electricity supply chain—for the use of a network, for example, and for balancing the variable nature of some renewable generation. Those become hidden subsidies in the feed-in tariff regime, which will be passed through to consumers. The RO allows the market to take account of those costs in contracting with renewables generators.
New clause 14 does not, on my understanding, remove the RO. It seems to envisage a situation in which the RO continues to run alongside a new regime. Before we decide to introduce any additional incentives for renewables, we must carefully consider how those schemes would interact. That will be a key element of our analysis in developing a strategy for the EU 2020 target. However, it is by no means a given that a Government-set tariff is the best approach. For example, people often claim that a feed-in tariff provides a more predictable support mechanism. We understand that the German Government recently announced that they would be reducing the level of the feed-in tariff for solar photovoltaics in Germany by around £120 per megawatt-hour. That was after the subsidy had already been reduced by around 50 per cent. over the past 10 years.

Martin Horwood: Will the Minister give way?

Malcolm Wicks: I shall give way on the issue of consistency.

Martin Horwood: No, on the specific issue of the adjustments to the German system. On further investigation, the Minister might find that those changes were grandfathered so that new entrants were earning the lower rate of the feed-in tariff. More importantly, they are a measure of the success of the German photovoltaic industry because they reflect a lesser need to subsidise the expanding and successful solar industry. Therefore, they are a measure of the success of feed-in tariffs, not a weakness.

Malcolm Wicks: I was addressing the issue of consistency. Going forward, it is good to be as specific as possible, so that new investors can do their arithmetic properly for the investment.
Many of the arguments for why we should not introduce a feed-in tariff in the Bill also apply to new clauses 6 and 8. I will not reiterate the points, but since the new clauses are more specific and seek a power permitting the introduction of a feed-in tariff for microgeneration and decentralised energy, I hope that the Committee will bear with me if I make two additional points.
First, we are clear that microgeneration has an important role to play in our renewable energy mix. That is clear from what I have already said. Our commitment is proven by the focus and support that the Government have given to microgeneration. In 2006, we saw our first-ever published microgeneration strategy. We have made £86 million available in capital grants in the low-carbon building programme to reduce the cost of buying and installing equipment. We have provided independent certification of products and services, and a route for complaints with the microgeneration certification scheme. This spring, we shall remove the need for planning permission for most domestic installations that have little or no impact beyond the host property. My hon. Friend the Member for Southampton, Test focused, in part, on that in his speech.
That is not all. Proposals in the Bill will enable the Secretary of State through the order to allow microgenerators to double the number of ROCs that they can receive at present. That is a significant advance. We have already taken steps to simplify the process for microgenerators under the RO, including allowing them to make annual claims for ROCs and simplifying the accreditation forms. We shall continue to simplify the access of microgenerators to, and benefit from, the RO.
Since the most recent changes that we made last April, the number of microgenerators accredited under the RO has increased by 250 per cent. For example, I am especially pleased that Ofgem will shortly be making an online accreditation system available that will make accreditation to the RO easier. The significant amount that the Government have already done, or have in train, demonstrates our commitment to the growth of microgeneration.
My second point, however, is that, although we remain convinced of the benefits of microgeneration and its potential role, against the background of rising energy prices and the inevitably constrained resources available in the economy to tackle climate change, we are also conscious of the fact that microgeneration is more expensive than a number of other large-scale forms of renewables. That is inevitable, given the state of that technology. Therefore, any decision that we take in the context of further support for microgeneration needs to be balanced carefully against whether additional resources might be more cost-effectively targeted at other forms of renewables. Such options could include renewable heat, which can be cost-effective for households that are not connected to the gas grid. Members of the Committee might like to note that most of the estimated 100,000 microgenerators in the United Kingdom are reusing renewable heat technologies.
For all those reasons, when giving evidence to the Committee on Tuesday 19 February, which I think was last week—

Charles Hendry: It seems a long time ago—

Malcolm Wicks: Indeed. I was grateful for the opportunity to announce that, as part of the renewal energy strategy consultation that my Department will conduct in the summer, we will include consideration of the role of microgeneration and distributed energy going forward. That will include looking at other support options, such as feed-in tariffs. All those arguments strengthen my view that it is premature to amend the Bill with the powers under the new clauses in advance of the work on the renewable energy strategy and the consultation in the summer. It is not until we have completed that work that we should consider whether additional legislation is necessary and, if so, of what type.
I reiterate my support for microgeneration, notwithstanding some of the issues that I have raised, not least because it enables the citizen to take action against global warming. We often debate climate change and renewables in terms of big institutions, such as Ofgem, the European Union and member states, and talk about big programmes, but there is growing concern among most of our citizens that we are part of the problem of CO2 emissions in respect of our dwellings. More and more constituents want to become part of the solution. There are different ways in which they can do that, but one is if we can facilitate the development of microgeneration.

Martin Horwood: The Minister’s remarks were perhaps influenced by a traditional civil service approach, but he was rather like a man building a monumental castle with lots of ramparts in defence of current policy and then opening a little back door to enable us to discuss feed-in tariffs during the consultation in the summer. Having said that, it is very welcome that the Government are to include feed-in tariffs in that consultation. I would like to put on record my appreciation to the Minister for that concession.

Charles Hendry: I join the hon. Member for Cheltenham in saying we are pleased that the Minister is to consult formally on this issue, but that has to be tinged with disappointment that he is not prepared to go further.
In particular, new clause 6 simply gives the Secretary of State a power to introduce feed-in tariffs at some time in the future. It does not require him to do so; it does not specify how. Looking at the time scale, the consultation process will start later in the year. One assumes that will run for some months and that there will be a further few months while the responses are evaluated before the Minister comes back to the House to give a statement. If at that point—we are looking at the middle of next year—the Government decide that feed-in tariffs are the right way forward, we then have to find a slot in the legislation programme, presumably in the following Session. So realistically we are looking at two years before feed-in tariffs could be on the statute book. That is an appallingly unsatisfactory delay.
If the Government are to decide relatively soon following this consultation process to go down the route of feed-in tariffs—and I hope they do, especially for microgeneration—it would make sense to have the enabling clause in this Bill so that they can immediately lay the measures for how they are going to do that before Parliament in secondary legislation. This is an opportunity to take a year of delay out of that process. 
Many of the contributions we have had have emphasised that time is not on our side. We know we are lagging behind others in microgeneration. All of us, I believe, want to see a step change in the approach we are taking towards that. Indeed, we put forward a document just before Christmas on microgeneration—I imagine it was on the Minister’s wife’s Christmas list for him to read while they were in the Channel Islands. We talk about how one makes every home a generator; how one encourages more people to go down the route of photovoltaics; how one stimulates an incredible change in the culture of this country towards electricity generation.
At the moment, there is enormous enthusiasm but confusion among the public. They want to do more but they do not know how to. The ROC system is part of that confusion. Feed-in tariffs would give much greater clarity, certainty and predictability. We have not had a single witness who did not agree with that—apart from the Minister himself. Every other person, in their written and oral submissions, said that they support the inclusion of feed-in tariffs in the Bill. All we are looking for is the capability to introduce this through secondary legislation in a shorter time scale than would be required if we had to go again through the whole process of primary legislation. We waited a long time for this energy Bill and it would be very unfortunate if the Government passed over this opportunity.

Malcolm Wicks: I was just thinking whether we had waited a long time for the Energy Bill. I do not think we should apologise for the fact that we have looked at energy strategy most carefully. We had the energy review, which I led for the then Prime Minister. We then consulted and had an energy White Paper. These are quite complex issues.
I would be loth to support any new clause that did not put us in the right place. I have said that I am open to the argument. In terms of incentives for microgenerators—both the householder and perhaps the management committee of the small community building, the church hall or whatever—we are not necessarily in the right place. I have acknowledged that. I have detailed the things we have done and I think we have done them quite well. We are not in the right place and I want to see how we can get there. We are going to do that through our strategy review.
If we legislate now, we could get to the wrong place. I said earlier that we would look at feed-in tariffs but we will also look at other mechanisms. There should be no theology about this. How do we enable and facilitate microgeneration? That is the issue. I would be reluctant to support a new clause now that might not be right. Through our renewable energy strategy, which is looking at the whole of renewables—the macro as well as the micro—we can work out whether we need to do more, what the best mechanism is and how we should proceed then.

Jamie Reed: Energy policy cannot exist in a bubble or in a vacuum. We are now discussing energy policy in the context of climate change and security of supply, but we also need to discuss it in the context of its social consequences and impacts, not least energy costs to the consumer. The witnesses we heard during our evidence sessions were asked, by me and I am sure by other Members on a number of occasions, what they believed the consequences of feed-in tariffs would be on what one might ordinarily describe as working class people. They were asked if this issue was a middle class obsession and if they had concerns about the effects of feed-in tariffs upon energy consumers at the poorer end of the social strata. Before the Minister finishes his speech, can he address that issue because we do not exactly know the answers? That is another good reason for us not rushing headlong into the feed-in tariff culture, as proposed in the new clauses here today.

Malcolm Wicks: My hon. Friend has raised a good point. I have said that I am always concerned when we have systems that mean the poor pay more for energy, albeit inadvertently, and that is true for food as well in many respects. Better-off people with bank accounts and credit can often pay less for energy. When we move forward with a potential support system, we have to be careful that we are mindful of the factors that my hon. Friend raises. I am bound to say that, in my Department, we are considering how we can bring the worlds of microgeneration and our concerns about fuel poverty together. That is a Department for Environment, Food and Rural Affairs responsibility, but we developed the energy efficiency commitment into what will now be called CERT—the carbon emissions reduction target—and it will now include a microgeneration element. At the moment, I am looking to see whether we might do more through our low-carbon building programme to tackle fuel poverty. That is sensible and it addresses the socio-economic issues that my hon. Friend raises. If we can use new technologies to tackle old social evils such as fuel poverty, we begin to get to the right place.

Charles Hendry: The exchange that we have just witnessed is interesting. It is unfortunate for many of us that the Bill will not give us the opportunity to talk about fuel poverty. Indeed, the amendments that Conservative Members have tabled on fuel poverty and those on social tariffs by Labour Members have been ruled out of order because of the way that the Bill has been defined. That is unfortunate. Will the Minister agree to see whether he can come back on Report with a clause that would try to achieve what we are seeking? In other words, that is a clause that would create a permissive environment so that he could introduce feed-in tariffs through secondary legislation at an early stage. If it was deemed, as a result of the consultation process, that that was the right way forward, the tariffs could be brought in earlier than if they had to go through primary legislation.

Malcolm Wicks: I will certainly promise to think again about that. I will not go as far as the hon. Gentleman is tempting me to go, for the reasons that I have established about our need to develop a sensible strategy. It is too soon to say whether other recommendations in that strategy will require future legislation, but I suppose that it is possible. There could therefore be future legislative opportunities. For the reasons that I have indicated, I do not think that I can concede that point to him at the moment.
The points that my hon. Friend the Member for Copeland introduced about the cost implications for different social groups are very important. The evidence that I was able to produce from the costs in Germany is important, although the hon. Member for Cheltenham intervened, I think helpfully, on that. I have figures that photovoltaic systems cost around 30p per kW hour at present, against between 6p and 7p an hour for large scale onshore wind. We must be mindful of those things, in relation to various developments and the way in which we support what are inevitably, at the moment, rather expensive technologies.

Martin Horwood: I share the frustration of the hon. Member for Wealden about the potential critical delay in the introduction of measures that might come out of the promised consultation. I want to be helpful; would it be possible for the Minister’s advisers to produce an opinion, by the time we next meet, on whether the introduction of any kind of feed-in tariff system would be legally possible as a result of the consultation, without further primary legislation, or whether there is, as Opposition Members feel there is, a question of a requirement for yet more primary legislation and delays? After all, we have had endless energy reviews and Select Committee reports on renewable energy.

Malcolm Wicks: Without promising too much, I have said that I shall reflect on the issues. I emphasise, however, that I have not committed us to introducing a feed-in tariff for microgeneration; I have said that it will be among the options that we shall consider. It would be foolish for us to get enthusiastic about one mechanism when there might be others, which could be more cost effective, to consider.

Charles Hendry: I shall not prolong the debate, but I am profoundly disappointed—given that there is cross-party support for the measure, and overwhelming support within the industry and environmental and consumer groups for going down route—that the Minister has taken such a hard stance against it. I hope that he will reflect on that subsequently and decide whether he can do something on Report that will respond to some of the relevant concerns.

Malcolm Wicks: Has the hon. Gentleman costed his proposals? He is being quite tough with me about that; presumably he has costed the implications of the new clause.

Charles Hendry: Yes, absolutely. I am sure that the Minister read the pamphlet that I referred to, which discussed how the proposal would be paid for. It would be paid for out of the auctioning of the EU emissions trading scheme. That would provide a phenomenal amount of money, which the Government could use to pay for feed-in tariffs. It would not require any taxation increases or charges elsewhere. A sum of money exists that has not yet been allocated, so it cannot be a spending commitment that the Chancellor would want to take into account in trying to hold us to account.

Malcolm Wicks: Has the shadow Chancellor agreed to such hypothecation?

Charles Hendry: Yes, of course he has. I would not have said it otherwise. It is made clear in the policy paper, and in the speech given by my right hon. Friend the Member for Witney (Mr. Cameron) at the beginning of December to explain exactly how we would pay for the relevant measures. We aspire to Government and we are not giving uncosted commitments or making announcements without explaining how we are prepared to pay for them.

Jamie Reed: Will the hon. Gentleman give way?

Charles Hendry: I can see trouble.

Jamie Reed: The hon. Gentleman does me a disservice.
On the funding point, is the hon. Gentleman confident that his proposal will have no negative effect at all on those poorer people who struggle with their energy costs and for whom, frankly, the feed-in tariff is an irrelevance?

Charles Hendry: The hon. Gentleman’s second point is wrong; but to deal first with his first point, going down the route of renewable energy will push up costs. Typically, of a £1,000 bill at the moment £80—8 per cent.—is related to the EU emissions trading scheme, the carbon emissions reduction target and other charges in relation to renewables policy. The consumer is already paying more for that element, and one expects the cost to rise over time. However, that does not mean that one should not be looking at doing more to get energy from renewables.
There is a separate issue, however, which is what the Government feel they should be doing about fuel poverty, and measures such as the winter fuel allowance and trying to ensure that the people most likely to be in fuel poverty have the means to pay the bills. One issue is an energy policy issue and one is a benefits policy issue. Clearly they are both issues for the Government, but one should not damn the desire to move towards renewables because of concern that there will be costs that will not be covered elsewhere. There is a responsibility to cover those costs somewhere else.
The answer to the second point is that we do not see any reason why people in fuel poverty could not benefit from microgeneration. If a large block of social housing had on its roof photovoltaic cells, providing electricity for the people who lived in those properties, and a wind turbine next to it, not only could they get their electricity from a wonderfully green source, but there would be scope for putting the excess—over and above that which they need—back into the grid and they could then derive an income from it.

Martin Horwood: rose—

Charles Hendry: One should not see microgeneration as the preserve of the rich with large estates where they can put up wind turbines. We have a much greater vision, and throughout the country, people should be encouraged to take that approach. That is what is so exciting about it.

Martin Horwood: The hon. Gentleman was right to hold me off from intervening, because he has just made the very point that I was going to make. There is a potentially important community benefit, and small scale microgeneration can deliver not only revenue to communities from the sale of electricity, but reduced fuel bills. The Carbon Trust is already developing an important precedent for it in the partnership for renewables initiative, which exactly illustrates the point that he very well makes.

Charles Hendry: I am very grateful for that kind comment.
My final point returns to the clause more generally. I have two concerns, one of which relates to exports. We have not had a clear answer about the issue from the Minister, but the Bill is quite clear. Proposed new section 32B (3) says:
“The matters within this subsection are—
(a) that the generating station, or, in the case of a certificate issued otherwise than to the operator of a generating station, a generating station specified in the certificate, has generated from renewable sources the amount of electricity stated in the certificate, and”—
this is the important part—
“(b) that it has been supplied by an electricity supplier to customers in Great Britain (or the part of Great Britain stated in the certificate).”
From what the Minister has said today, particularly about the super-grid, we do not have clarity about the provision’s meaning. The proposed new section says
“that it has been supplied by an electricity supplier to customers in Great Britain”.
If the super-grid does not sell to customers in Great Britain, but exports directly from British territorial waters to Denmark, Holland, Germany or wherever, what are the implications of the change in the ROC system for it? We must have greater clarity about the process than we have received from the Minister so far. He, himself, was slightly confused about how it might work, so I hope that during the course of this brief intervention, the people who are scribbling furiously at the back may be able to give us some initial guidance.

Malcolm Wicks: Why does the hon. Gentleman need greater clarity now? We do not have a super-grid; it is an idea. I think that it is a great idea—an interesting idea. The European Union thinks that it is a good idea, it has asked former Minister Adamowitsch to examine it and we have had preliminary talks. However, the hon. Gentleman talks as if the grid is about to get up and running and as if it is a critical issue that we need to know about by Tuesday. The same situation has occurred once or twice during our debates, regarding provisions that will not be introduced for many years.
Will not the hon. Gentleman, in a kind moment, concede that we have time to think through the issues rather than imply that, in the Bill, I must be absolutely precise about the way in which some renewable electrons in Cheltenham sometimes find their way to Prague? Is he, in asking me that question, being fair, or is he, I suggest very kindly, being slightly ridiculous?

Charles Hendry: The hon. Gentleman will be very lucky to get an admission that I am being slightly ridiculous; it would be an unusual admission to make. I always seek to be kind, apart from on the “Today” programme at seven minutes past 7 this morning, when I was in a slightly different mode. There is an important issue before us, however. We are making an Act of Parliament, a statute that will exist for many years to come, and the provision potentially puts a big hurdle in the way of the super-grid. I do not know whether Airtricity, the company that is looking to develop it, has been consulted on the issue, but if it will not be able to use the ROC system for the generation of wind power offshore, which it would directly export from British waters to Germany or somewhere else, there is a potential flaw in the Bill and we are right to address it now.
Perhaps the Minister will tell me that Airtricity and others have been consulted and are completely happy with the provision, in which case I am more than happy to withdraw my concerns. If they are happy, we should be. However, my fundamental concern is that there is a distinct lack of clarity about what that aspect of the clause means, and I am simply trying to get the Minister to give us greater clarity.

Malcolm Wicks: I certainly have not received any representations myself—I do not know whether my officials have—from the industry about that concern, because I think that they, rather like me, see its introduction as being some time ahead. However, in the context of the European Union’s 2020 target and the detailed discussions that are now taking place between member states and the Commission, the issue of what a nation state’s target means and whether some renewables might be generated in another European country if it were more cost- effective is being discussed. Those issues are not entirely dissimilar to this one. If and when there is a great grid of wind farms—perhaps tidal and wave—we can address the implications of that in a timely fashion. I will make sure that we consider the matter as part of the renewable energy strategy that we are developing, on which we are consulting in the summer.

Charles Hendry: There is furious scribbling going on in the background, which may provide greater enlightenment in due course. I am grateful for the Minister’s response. I am not seeking to be obstructive or awkward and we will certainly not vote against the clause because of this particular element, but I feel that there is a potential obstacle to the exciting, new and innovative approach that we want. I am keen to make sure that that obstacle is removed.
In my earlier comments, I referred to the gobbledegook provision, which is proposed new section 32B(10)(d). I read it out and nominated the Minister for a plain English award for gobbledegook. I asked him to explain what it means because it is so extraordinarily opaque and difficult to understand. I imagine that one of his officials is still in a darkened room with a wet towel around his head trying to find out what it does mean. Before we move on, I would be grateful if the Minister could clarify that provision.

Malcolm Wicks: Luckily for me it so happens that I can do so. Having, perhaps rather unkindly, nominated the hon. Gentleman for asking the most absurd and ridiculous question, he has nominated me for gobbledegook. I thought that the purpose of proposed new section 32B(10)(d) was perfectly clear, but for the sake of clarity let me read something out.
ROCs can be issued to generators where it can be demonstrated that the electricity from renewable sources has either been supplied by an electricity supplier to customers in Great Britain or Northern Ireland, or the electricity has been used in a permitted way. I agree that the legal drafting in proposed new section 32B(10)(d) might not be easy to follow—that is what my brief says—but it simply makes it clear that a permitted way includes any combination of self-consumption, supply through a private wire network and provision to a transmission or distribution system. Those permitted ways cover various situations where electricity generated from renewable sources has not been sold on through a supplier or where it is difficult to prove that it has. I hope that that clarifies the purpose of this part of the clause.

Question put and agreed to.

Clause 36 ordered to stand part of the Bill.

Clause 37

Section 36: supplemental provision

Question proposed, That the clause stand part of the Bill.

Malcolm Wicks: This clause makes two supplementary provisions to the new RO sections of the Electricity Act 1989, as set out in clause 36. Subsection (1) aims to ensure timely delivery of a banded renewables obligation. We have set ourselves a challenging timetable in which to introduce our proposals to allow industry to take advantage of the benefits of the RO as quickly as possible. That is particularly important in the light of the EU proposals on renewables that were published recently. Our aim is to bring forward the renewables obligation order with the relevant change by April 2009, which was a commitment we gave in the 2007 White Paper on energy.
The nub of the point is this: to meet the timetable, it will be necessary to carry out a consultation before the Bill has fully passed parliamentary scrutiny. Subsection (1) allows us to consult on the draft renewables obligation order before the Bill receives Royal Assent and to take account of the responses to that consultation. The order will, of course, be subject to further parliamentary scrutiny and will be debated in both Houses before being passed.
Subsections (2) and (3) of the clause allow consequential amendments to be made by order to references in the Electricity Act 1989. The purpose of the provisions is to ensure that, once the legislation has been passed and Northern Ireland makes an order amending the Energy (Northern Ireland) Order 2003 to reflect the changes, references in the 1989 Act to the Northern Ireland order can be changed to refer to the correct numbering. Subsection (2) allows us to extend section 32K(2) to cover ROCs issued by the Northern Ireland authority under the old regime so as to extend provisions relating to the transition from the old regime to the new one in Northern Ireland. This is purely a tidying-up exercise to ensure the renewables obligation can continue to operate on a UK-wide basis.

Question put and agreed to.

Clause 37 ordered to stand part of the Bill.

Clause 38

Existing savings relating to section 32 of the Electricity Act 1989

Question proposed, That the clause stand part of the Bill.

Malcolm Wicks: Just a brief description—the purpose of this clause is to clarify the operation of section 67(1)(c) of the Utilities Act 2000. The Secretary of State has the power to preserve, modify, replace or otherwise deal with arrangements which relate to the non-fossil fuel obligation, the original support mechanism for renewable electricity before the RO was introduced. The non-fossil fuel obligation, or NFFO arrangements, were put in place through orders made under the original section 32 of the Electricity Act 1989. Under the NFFO, electricity suppliers enter into fixed-term contracts with generators for the purchase of renewable electricity. That ensures that renewable generators get a specified price, as set out in the contract for their renewable electricity. The last of those contracts runs up to 2018.
The 2000 Act replaced the NFFO regime with the RO and made provisions for the continuance of NFFO contracts. In particular, section 67(1)(c) provided a power whereby the original NFFO arrangements could be preserved, modified, replaced or otherwise dealt with. The amendment to section 67(1)(c) clarifies that the Secretary of State has the requisite powers to preserve, modify, replace or otherwise deal with arrangements which have replaced original NFFO arrangements. I move that this clause stand part of the Bill.

Question put and agreed to.

Clause 38 ordered to stand part of the Bill.

Clause 39

The Northern Ireland renewables obligation

Question proposed, That the clause stand part of the Bill.

Malcolm Wicks: This clause allows smooth implementation of a reformed RO in Northern Ireland to allow us to achieve our preferred option of a unified approach to the RO across the UK. First, subsection (1) allows the authority, Ofgem, to carry out work in administering the RO on behalf of its opposite number in Northern Ireland, Ofreg. This is the arrangement at present, which works well. The amendments made by this clause ensure that the authority can continue to act on behalf of the Northern Ireland authority even if articles 52 to 55 are amended by an order under article 56 of the Energy (Northern Ireland) Order 2003.
Secondly, the clause ensures that there are no unnecessary legislative barriers to implementing the reforms in Northern Ireland. The provisions in subsection (2) ensure that the Northern Ireland authorities can pass an order under article 56 to take account of the amendments in this legislation as well as the original sections of the Electricity Act 1989. It will enable the operation of a UK-wide RO regime. While it maintains the requirement to consult in the Province, the clause allows that consultation to be done in advance of the article 56 order, thus allowing timely implementation of reforms.

Charles Hendry: The Minister will recall that this morning he had a brief exchange with my hon. Friend the Member for East Devon about the rate of ROCs in relation to other parts of the UK, and some views were expressed that three or five ROCs might be provided in support of marine and tidal technology in Scotland. Will a ROC mean a ROC wherever that type of technology happens to be in the UK, or is there scope for varying levels of ROC support for different technologies in different parts of the UK?

Malcolm Wicks: I was saying this morning that it is not the case that in Scotland there are four or five ROCs for marine. There is a great deal of interest in the Scottish Executive in marine energy, understandably given the terrain, the Pentland Firth and so on. Our position is that it makes sense to have an RO regime that is common to all parts of the UK. That will be the burden of our current discussions with the devolved regimes. That position is sensible because we are a united kingdom, and because of investor confidence and so on.

Hugo Swire: Will the Minister elaborate on that a little more? I understand that he said earlier today that negotiations are continuing with the Scottish Executive. Given that, clearly, the Scottish Executive wish to provide greater incentive or more ROCs for marine technology and wave power north of the border, will the Minister try to increase the allocation in the remaining part of the United Kingdom to what Scotland wants, or will he try to persuade the Scots to reduce to what he wants?

Malcolm Wicks: The burden of our discussion will be to try and argue that, certainly in this area, it makes sense to have one uniform regime in which one ROC for marine somewhere is worth another ROC for marine somewhere else. That is what we are trying to do. Without that, we start to run into a good deal of confusion.

Hugo Swire: The Minister has slightly avoided my question, which was quite clear. Given that Scotland clearly wishes to move towards an allocation in the range of five ROCs for wave power and three for tidal power—the Minister has been talking about considerably less—will he try to persuade the Scottish Executive to reduce to what he wants, or will he persuade the rest of the United Kingdom to move up to what Scotland wants? Can the Minister put some time frame on when those discussions might reach some sort of compromise?

Malcolm Wicks: Those are discussions that we are having already. I cannot quite predict the time frame. I am afraid that I am rather left repeating myself: we would want a common regime. I do not want to say at the moment that the Scottish Executive should reduce to what we say—we have to have a proper discussion about that. But I see the advantages of uniformity. Ultimately, decisions on banding for Scotland are for Scottish Ministers. We are working with the devolved Administrations to try to get a unified system and it is too early to answer that question. It is very much in our minds at present. I am sorry that I cannot be of more help.

Hugo Swire: I am grateful, up to a point, to the Minister. But will he not concede that if the incentives were greater in Scotland—given that it is a devolved matter and it is up to the Scottish Executive to set their own levels—that would be a disincentive to investment in the rest of the United Kingdom?

Malcolm Wicks: I can see the point, yes. Ultimately, people will invest where there is a strong renewable resource, and I certainly concede that a great deal of the tidal and wave resources are in Scotland, but not wholly—they are around different parts of the United Kingdom shores. These are difficult matters. The issue is devolved. I see the need for some uniformity, and that is how we are negotiating.

Question put and agreed to.

Clause 39 ordered to stand part of the Bill.

Clause 40

Offshore electricity transmission

Question proposed, That the clause stand part of the Bill.

Malcolm Wicks: This takes us on to a new section of our legislation, concerning offshore electricity transmission. Clearly, given our discussion about the importance of offshore wind to our renewables strategy—and perhaps one day, hopefully, that of marine energy, wave and tidal—this is a significant and quite technical part of the Bill.
We are putting in place a framework to encourage the development of electricity generation from offshore. There are already plans to develop more than 8 GW of offshore wind in UK waters, and in December last year my right hon. Friend the Secretary of State for Business, Enterprise and Regulatory Reform announced draft plans for developing up to a further 25 GW of offshore energy.
The UK has the best offshore wind resource in Europe, and an important part of the framework to utilise this resource is the effective development of offshore electricity networks, which are needed to ensure that electricity generated by offshore renewables can be delivered to shore. Under the Energy Act 2004, the Secretary of State already has powers to introduce a regulatory framework to govern offshore electricity networks connected to Great Britain. Those powers allow for the Secretary of State to make changes to existing industry codes, agreements and licences for the purposes of regulating offshore transmission and distribution.
The Energy Act 2004 also amended the Electricity Act 1989 to provide for the authority—Ofgem—to make regulations facilitating the selection of an offshore transmission licence holder by a competitive tender exercise. The additional powers that we are seeking in the Bill supplement the Energy Act 2004 powers in relation to offshore transmission.
Since the Energy Act 2004 was passed, the Government have been working with Ofgem to develop the detail of the offshore licensing regime for Great Britain that will be implemented using the Energy Act powers. The regime we are developing will apply to the conveyance of electricity generated offshore by high-voltage lines, regulated as transmission. Once the regime comes into force, it will cover offshore lines of a nominal voltage of 132 kV or more.
We have been consulting with industry stakeholders and other interested parties on the policy options for the new licensing regime. The Government decided that an offshore regime that mirrors, so far as possible, the onshore regulatory regime—including a price-regulated approach—was most likely to assist the development of offshore renewable generation and would enable a co-ordinated approach to be taken to the building of new electricity connections needed to connect those projects to the Great Britain onshore grid. [Interruption.] I apologise; I confused the look of great interest with a possible intervention.

Hugo Swire: Will the Minister give way?

Malcolm Wicks: Yes, unless the hon. Gentleman thinks that it will be helpful if I explain further.

Hugo Swire: Will the Minister just pause for a second and then elaborate slightly on the planning issues? Did he say—or did I mishear—that the same planning requirements would be brought to offshore proposals? He has not mentioned tidal turbines and other ways of generating electricity—he is talking about cables at the moment—but is this the time to tell the Committee what planning requirements would apply to offshore tidal turbines and other ways of generating electricity offshore?

Malcolm Wicks: No, I do not think that this is the time. If there is an opportunity for saying more about that in due course, I might do so, but I am trying to talk about the grid mechanism. However, I will try to find a way of accommodating the hon. Gentleman’s question in due course if I can—not necessarily during this debate.
As a result of our chosen regulatory approach, offshore renewable generators will receive similar access rights to the grid as generation connected onshore. The Government have also concluded that, because such transmission assets are new and there are no incumbent licensees, there should be competition for offshore transmission licences that authorise the conveyance of electricity from specific offshore projects, rather than awarding one licence for the conveyance of electricity from all projects in an offshore area. We believe that that competitive approach to licensing offshore networks will give new parties the opportunity to enter the market, thus bringing innovative solutions and helping to keep down costs for developers and electricity consumers.
The purpose of clause 40 is to supplement the existing powers and enable the authority—Ofgem—that will have responsibility for running the tender exercise to select offshore transmission licence holders and to recover the costs it incurs through the process. At present, the authority is able to recover the costs of undertaking its duties and functions only through a combination of licence application fees and ongoing licence fees.
Clause 40 will allow the authority to fund its role in the tender exercise by requiring those parties that cause the authority to incur costs in running the tender process to contribute directly towards meeting those costs. We consider that approach to be a more appropriate than the existing cost recovery powers, as it increases transparency and ensures that the costs of running the tenders are met by those who participate in the tendering exercise and not licence holders generally.
Clause 40 will enable the authority, by regulation, to create new mechanisms to recover its costs in carrying out and administering tender exercises. Since the precise details of the tender exercise are still subject to consultation with industry stakeholders and other interested parties, clause 40 has been drafted to provide flexibility in relation to the form of payments to be required and the participants from which they can be recovered. However, we are clear about the broad objectives that we are trying to achieve through the use of these mechanisms. In particular, the mechanisms are intended to ensure that participants in the tender process are appropriately committed to the exercise and that the costs are met by the appropriate persons.
The authority has recently published a document that sets out proposals for a five-stage tender process that would lead to the selection of an offshore transmission licence holder and therefore the award of a licence. To prevent the excess recovery of costs, the Bill includes a provision—proposed new section 6D(5) of the Electricity Act 1989—that will require the authority to take steps at the end of each tender exercise to ensure that the total amount that it has obtained from the participants in the tender exercise does not exceed the actual costs incurred.
Subsection (3) constitutes a technical amendment to the Electricity Act 1989 to ensure that the definition of “relevant offshore line” includes electric lines that are located in GB internal waters.
Finally, clause 40 introduces schedule 2, which will give effect to proposed new schedule 2A to the Electricity Act 1989.

Charles Hendry: I am grateful to the Minister for his detailed explanation of the clause. Most of what he has described appears to be fairly technical and concerns the details of financial arrangements. To that extent, the Opposition support the Government’s approach, as there is clearly no point in having wind turbines across the North sea if they cannot be connected to the national grid.
As I said earlier, the Government have set ambitious targets for offshore wind generation. Will the Minister tell us a little more about what he thinks that will involve and how we will get there? He has talked about the fact that the Government expect about 8 GW to come through anyway; as of December, they have said that they want a further 25 GW on top of that. That is an enormous challenge. Does he believe that the measures are in place to encourage that, and if not, what additional measures are needed to make it happen? Some people say that, to meet that target, two turbines a day will need to be constructed; some say that ten will be needed. What is the Minister’s assessment of how many turbines a day will be needed to meet the target? It seems challenging.
Will the Minister tell us a little more about what he thinks the load factor will be for offshore wind? We understand that offshore wind probably has a higher load factor than onshore wind and that it may be 40 or 50 per cent. Is that also his assessment? To what extent has he had information about how offshore wind, when it does blow, ties in to when we need it most? Is there evidence to show that there is more wind in the winter, when there is greater electricity demand? Is there more wind in the morning and in the evening, when there is also a higher electricity demand? Is there a better match between offshore wind and when electricity is needed than there is, perhaps, with onshore wind?
The clause raises the whole question of the obligations on the National Grid, with regard to its connection of renewable energy sources. The problem at the moment is that it has to connect elements in the order in which applications are made. That causes significant problems. Some onshore wind farms already have planning approval but will not get a National Grid connection for some years. Equally, some onshore wind farms have been given their National Grid connection, although they will be stuck in planning for some years.
There seems to be general agreement that the way in which the National Grid operates should be changed, and it should be able to give priority access to renewables, both offshore and onshore. That has been covered in some of the representations that have been made to us. Scottish and Southern Energy said:
“In addition, the current regime for access to and charging for the GB transmission system is undermining Government policy by sending a signal not to invest in new generation in those areas with an abundance of natural renewable resource. Renewable generators with consent are being held off the grid due to the access regime. Transmission charges are extreme, volatile and unpredictable; hence potential investors cannot gain sufficient confidence to commit to substantial new generation capacity. The Energy Bill is an opportunity for the Government to align the regime for access to and charging for the GB transmission system with its wider energy policy objectives, and particularly it is an opportunity for the Government to address the access and charging issues for the UK transmission system that currently block renewable energy.”
Similarly, Royal Society for the Protection of Birds said that it wanted to give sustainable electricity priority access to the national grid. The British Wind Energy Association said:
“In particular Ofgem’s interpretation of its rules mean National Grid cannot invest in upgrading connection and cabling for new wind farms until developers are able to underwrite their costs. Companies are unable to do this until their schemes are approved and they have secured finance, which can take several years: under current arrangements they would then have to wait further for grid upgrades before they can generate. Ofgem fears that early investment in system reinforcement would result in stranded assets being built. BWEA believes that Ofgem must relax its rules regarding National Grid’s investments, allowing it to adopt a “predict and provide” policy towards connection and grid access issues.”
Finally, the WWF said in its submission that it would like the Bill to give renewable electricity generators priority access to feed their power into the national grid. Will the Minister tell us how far the clause goes in assisting the giving of priority access to the grid for renewable sources, particular those that are offshore?

Brian Iddon: I did not hear the hon. Gentleman clarify the Conservatives’ policy on onshore wind, but I note that their quality of life report said:
“Onshore wind is now at market competitiveness with internal rates of return (IRR) hitting 25 per cent., and so should receive no further support through the proposed banded competitive feed-in tariffs.”
I agree that the clause is about offshore transmission, but the hon. Gentleman has referred to onshore transmission and has indicated that there are some difficulties with onshore wind connection to the grid. Is that still a definitive statement of Conservative party policy regarding onshore wind?

Charles Hendry: I am very grateful for the opportunity to clarify this matter. The quality of life report was a submission written to the party board. It was never party policy. We asked various people with a great deal of expertise in those areas to make recommendations on what we should include. That recommendation has not been taken forward—others have, but the more we looked into that one, the more we recognised that the costs of onshore wind have gone up. We believe that the Government are right in continuing the ROC system with a single ROC for onshore wind. I hope that I have clarified where we stand on the matter.
The Minister will know that we have tabled a new clause in relation to Ofgem’s remit that could enable the issue to be addressed in terms of priority access. Some have suggested that a document—MOD 148—will provide the answers to that, but it would be helpful to have the Minister’s assessment for how the national grid should operate in those circumstances. It is clearly in no one’s interest to have people investing in renewable energy sources if they cannot connect them to the national grid.

Martin Horwood: I am grateful to the Minister for his opening remarks and, indeed, to the hon. Member for Wealden for his comments. I agree with much of what he said about the importance of priority access, and I thank him for his useful clarification that the well-regarded quality of life report is not actually Conservative party policy. We had suspected as much.
In some of his remarks, the hon. Gentleman strays off the subject of transmission, which is the subject of the clause. In Gloucestershire, we now very clearly understand the difference between generation transmission and distribution. Generation is where the electricity comes from; transmission is how it gets into the county; and distribution is what stops when the substation is flooded—that raises the general issue of critical infrastructure that I will return to.
The clause addresses a potential gap in policy. We are—not literally, I hope—in uncharted waters; a new area of policy with the development of things such as the super-grid. Obviously, new arrangements must be put in place to cope with these developments. We must look at whether the competitive tendering process is the right way to go. I was a little concerned when looking, as I always do, at the Minister’s impact assessment that he signed off on 9 January. It identifies problems that the policy is designed to address. One of those is the lack of a compulsory transfer scheme if commercial negotiations fail between asset owners. That is fair enough. The second problem that it identifies is that
“the Authority’s”
—Ofgem—
“existing powers of cost recovery do not enable it to recover its costs from participants in running competitive tenders to identify an offshore transmission licensee.”
That might be true, but it rather underlines the fact that the competitive tender process appears to have been taken for granted.
As far as I can see, the impact assessment does not identify risks associated with that policy or compare it with other approaches. I was interested to hear the Minister say that different options had been consulted upon and explored, because normally they tend to show up in the impact assessment. However, on this occasion, that does not appear to be the case. One paragraph begins:
“What policy options have been considered? Please justify any preferred option.”
The answer reads:
“The Government has considered (1) the option of proceeding without further powers for the Authority, i.e. do nothing. Its preferred option is (2) taking new legislative powers to establish mechanisms to enable Ofgem to run an efficient and effective tender process and avoid potential delay from commercial negotiations failing to the transfer of property, rights and liabilities. Delays to establishing an effective transmission licensing regime would delay the further development of offshore renewable deployment.”
That is true, but essentially it identifies a financial risk to Ofgem and a problem with the process. It does not explore other options, such as extending the current regime without resorting to offshore renewable transmission.
The national grid was not developed on the basis of competitive tendering processes, but was the result of good old-fashioned central planning. It might be heresy for a new Labour Minister even to consider it, but perhaps it is not wise to think that critical infrastructure is always best developed by the lowest bidder, which is in effect what we will have, especially if that lowest bidder is not the National Grid, but a company developing untested technology on a large-scale.
The impact assessment does not address the risk of quality failings. I would be grateful, therefore, if the Minister could reassure me that serious quality risks were identified and considered in the various consultations and policy options that he explored in advance of drafting the clause. We in Gloucestershire now know the importance of critical infrastructure—if something goes wrong, it has a real impact on people’s lives.
I am concerned that the regime in clause 40, which is quite long, differs from other licensing regimes established elsewhere in the Bill. The Committee has discussed on a couple of occasions already consistencies and inconsistencies between different licensing regimes. In other places, we have been reassured that environmental concerns were paramount and that many conditions could be attached to licences concerning matters such as public health. However, on this occasion, we appear to have been presented with a provision fixed very narrowly in commercial terms and that assumes that the cost-effectiveness of the competitive tendering exercise is the only consideration. The impact assessment promises us 10 per cent. efficiency savings—I think—from the introduction of the competitive tendering exercise, but it does not mention quality risks.
I have some very specific questions for the Minister. What conditions does he imagine will form part of the tender specification in respect of the following: first, the environmental impact of new transmission infrastructure with particular regard to the marine Bill and how any tender would interact with marine management under that Bill; secondly, the proven experience of companies tendering for a contract in delivering high-voltage transmission in other arenas, particularly large-scale national infrastructure, such as offshore; and, thirdly, the importance of establishing that there is good technological grounds for the tendering company being able to establish an interconnection with the existing national grid? I should like specific answers from him, if possible, on those three matters.
As the Minister said, we are discussing 8 GW of capacity, possibly rising to as much as 33 GW of UK electricity generating capacity being placed offshore. He is now frowning from a sedentary position, but his exact words were, “8 GW and then a further 25”. Was that not right? Did he mean a total of 25?

Malcolm Wicks: I am in a sedentary position because that is the polite place to be. I was frowning at nothing that the hon. Gentleman said. When he says something really ridiculous, I will certainly frown.

Martin Horwood: I am very grateful to the Minister, and I shall try to avoid saying anything ridiculous.
The scale of offshore renewables is potentially huge. If Airtricity was planning a super-grid or a super-grid was delivered by any other company, it would be absolutely essential to get the thing right. The potential of offshore renewables is huge and they will be essential elements of the national infrastructure. Perhaps we should have a self-denying ordinance among all members of the Committee that we do not tell the hon. Member for Stone (Mr. Cash) that the European Union offshore wind co-ordinator even exists; otherwise I can imagine an entirely new debate on the European Union treaty taking place.

Malcolm Wicks: Again, it has been an interesting debate although very little of it has been about the clause even though the clause is important. It is quite detailed and relates to the carrying out and administration of tender exercises for selecting the holders of offshore transmission licences. It provides express powers for the authority to recover its costs in relation to such tenders, as I outlined earlier. On that—perhaps understandably—colleagues have hung several questions that are not strictly to do with the clause, but which really need a larger debate on environmental impacts.
Everything we do offshore, whether the oil rig or wind farm, involves the careful assessing of environment impacts. We would not give a licence in waters where dolphins might be under threat, for example. [Interruption.] No, it is not in the clause because that is not about dolphins. We cannot hang everything on the clause, although there might be opportunities for raising some issues. It is unfortunate that the hon. Member for East Devon has left the room, although he might be coming back at which time I shall answer his question.
The hon. Member for Wealden asked about electricity networks. Given our programme on offshore wind, it is clear that, during the next 10 to 15 years, the UK will need to deliver a significant increase in the proportion of our energy from renewable resources. The implications for that for offshore wind are considerable. It sets an unprecedented challenge for our electricity networks, and highlights the urgent need to tackle any barriers to grid access for renewable generators. That means considering the longer-term, technical and, indeed, regulatory challenges of high levels of renewable generation. I assure him that we are working closely with industry, the National Grid and Ofgem to ensure that the grid is fit for purpose in the quite challenging times ahead as we move to a low-carbon energy system in the UK and Europe. We particularly need to ensure that the system can efficiently accommodate the expected expansion in renewable generation to 2020 and beyond.
Together with Ofgem, the National Grid and the industry, we are undertaking a number of initiatives to address short-term, medium-term and long-term grid-related barriers to renewable generators. As we develop our renewable energy strategy, we will need to consider what further measures beyond the current transmission access review we should take to deliver grid access in support of our targets. The transmission access review led by Ofgem and my Department is examining the framework for grid access for renewables to ensure that it remains fit for purpose. An interim report was published last month and a final report and recommendations are expected in May of this year.
The hon. Member for Wealden asked for further details about the offshore transmission regime. We always expected a significant contribution from offshore wind, but I cannot go into detail about how many wind turbines will be built over what period. We are the licensing body; we look at environmental impacts; we provide a regulatory framework. At the end of the day, it will be for commercial developers to come forward with their own proposals and I cannot prejudge that in any detail.

Charles Hendry: The difficulty the Minister has is that the Government have set the target. They have said that they want by 2020 the 8 GW that is planned already plus another 25 GW of offshore wind, so 33 GW in total. They must, in reaching that target, have worked out how that is going to be achieved, how many turbines are going to be necessary, what the construction rate is going to be and to make sure we have the skills available to erect them. My assumption is that that work has been done by his Department so that the Secretary of State can come forward with that target. As the work has been done, it would be good if the Minister could share it with the Committee.

Malcolm Wicks: We do not have a target for offshore wind. We are developing, through discussions with the European Commission, what our targets should be in 2020 for all energy coming from renewables. That is where we are.
The hon. Gentleman is thinking about the Secretary of State’s statement about our ambition for the development of offshore wind and how that will influence our licensing procedure. We cannot be in the business of saying there will be so many wind turbines or so many biomass plants. We have a licensing regime that we hope will facilitate a massive expansion of offshore wind. [Interruption.]

Charles Hendry: You are speaking.

Malcolm Wicks: Yes, I am speaking; it is sometimes difficult to remember. I am so impressed when the hon. Gentleman speaks that there is a bit of me shouting, “More!”. I must not frown at the fact that I do that.
The hon. Member for Wealden also asked me about load factors. Yes, offshore wind has a higher load factor than onshore wind. There is certainly a significant resource offshore. We are currently undertaking a strategic environmental assessment to assess some of the environmental impacts as we go forward with a potential 25 GW coming from this resource.
The hon. Gentleman also asked me about priority access for renewables. We have a proposed new clause on this issue, which we will come to later. I would be grateful if I could deal with that matter then.
The hon. Member for Cheltenham was interested in what other options we were considering. He mentioned, as a good central planner, the possibility of the National Grid doing this work. As he knows, National Grid has a long-held onshore monopoly business which is regulated by Ofgem. The new regime for offshore transmission provides the opportunity for new companies to enter the market and bring new and innovative solutions to grid-connect offshore.
The Government have consulted extensively with industry on the establishment of the new regime and have concluded that the best approach is the use of competitive tenders to select offshore transmission licence holders. In the consultation with stakeholders the extension of National Grid’s onshore monopoly was not supported by any offshore wind developers. A number of capable and experienced partners have expressed an interest in becoming offshore transmission owners. We, therefore, believe it is right to test the market by competitive tender to find the best candidates to build these new offshore connections. National Grid should be able to enter such tenders, provided that it does not interfere with its role as the Great Britain system operator, which the Government have already announced that they intend to extend offshore.

Martin Horwood: I am grateful to the Minister for his comments and his explanation that the consultation was a bit more expansive than we might have guessed. We might not have guessed because there is no mention of those options having been discussed in the impact assessment. It simply looks at the option of doing nothing or having the current regime. Is it possible for him to place on the record or to supply to Committee members any details of the consultation that has taken place and of the risks that might have been identified with going down the competitive tendering route?

Malcolm Wicks: I am happy to do that and I will write to the hon. Gentleman and send copies to the Committee.
I was again asked by the hon. Member for Cheltenham about the regulator recovering costs in the future. Certainly, there are similarities between what Ofgem will be doing with the competitive tenders for licences for offshore transmission owners and Ofcom’s function. The similarities are competition for licences, which I have said is very important; a process run by a regulator, which is key to this; a process set out in regulations; and the ability to require deposits, which can be refunded in whole or in part. However, there are instances in which the regimes differ, and clause 40 is by no means identical to Ofcom’s powers. Clause 40 has been developed to be fit for the purpose for which we intend it, namely, the offshore transmission regime.
The hon. Member for Cheltenham asked about the environment and I suggested to him that there was a wider debate to be had about offshore environmental issues. They do not actually relate to the clause. Participants who are building assets will need to secure consents for their lines, which will require them to undertake environmental impact assessments, just as is the case now. I hope that that satisfies him.

Martin Horwood: I regret to say to the Minister that he has not satisfied me, particularly about the new provisions coming in under the marine Bill. Although he keeps suggesting that some of the issues that I have raised do not relate to the clause, I think that they are perfectly germane to it because it establishes the licensing regime. Therefore, it is perfectly valid to ask what conditions tenders will be issued under. The environmental considerations are absolutely important. The regime established here today or by the passage of the Bill should be consistent with the new regime introduced in due course by the marine Bill.

Malcolm Wicks: I am trying to say that this is an important clause and that it is about the way in which licences for grids will be regulated and about certain issues of costs for Ofgem. It is not a whole clause saying for the first time, “Let’s build offshore wind and let’s consider the environmental impacts.” That is covered elsewhere.
I shall say something about planning because I was asked about it by the hon. Member for East Devon, but I was hoping that he would have returned to the room before I mentioned this. We expect that once the proposals in the Planning Bill and the draft marine Bill are in place, the following planning arrangements will apply. I say “expect” because the draft marine Bill has not yet been published and the Planning Bill is going through Parliament, and I do not want to prejudge anything. If both go through, as we assume at the moment, the planning regime will be as follows. Generating stations with capacity greater than 100 MW will be considered by the infrastructure planning commission and those under 100 MW will be considered by the marine management organisation, which will be part of the new regime of marine spatial planning. I should add that currently all stations with a capacity greater than 1 MW are considered by the Secretary of State. The connecting cables will be considered as part of the project being considered. Therefore developers will not have to seek planning permission for the cables separately. I hope that goes some way towards answering the hon. Member for Cheltenham, although I fear not far enough to satisfy him, because he wants to hang a whole debate about the marine environment on this particular clause.

Martin Horwood: I do not want to try the Minister’s patience, but I am not raising issues about the whole offshore generation of electricity here. I am specifically talking, as the clause does, about the transmission infrastructure and how that will impact on the environment and other issues about the proven experience of contractors and the interconnection with the existing grid. His answer to the hon. Member for East Devon goes some way towards answering some of that, although it is rather surprising that there will be this separate licensing or tender regime if it is simply going to be part and parcel of the main projects themselves. That is quite a surprising revelation.

Malcolm Wicks: No, I do not think it is. I think I am right in saying that the hon. Gentleman is more ambitious about this clause than I am. It is really dealing with some rather important matters, but in terms of environmental concerns, this clause does not establish the regime—much of it was established in the Energy Act 2004. These technical powers supplement that. The environmental impact will be considered through the planning process and any strategic environmental assessments, as I hoped I had made clear earlier. The environmental issues will be looked after and the fact that they are not mentioned in this clause is neither here nor there. We have legislative cover for that already.
The hon. Gentleman also asked about technical competence. We expect that participants in the process will have a proven track record in delivering major electricity infrastructure. The assessment of those in the process will need to take account of technical competence to ensure that the grid is fit for purpose. Existing UK and European players have expressed an interest in building offshore infrastructure.
I think I have dealt with impact statements and I have promised to write to the hon. Member for Cheltenham about the options we were considering and to copy that to other hon. Members.

Question put and agreed to.

Clause 40 ordered to stand part of the Bill.

Schedule 2

Decommissioning of energy installations

Question proposed, That this schedule be the Second schedule to the Bill.

Malcolm Wicks: Once the new offshore transmission regime goes live—currently expected at the end of 2009—all projects that connect to shore via lines of 132 kV or above will be covered by the new licensing regime. This means that some projects that have already been built or are currently under construction will need to be subject to the new tendering process for offshore transmission licences.
To date, the sub-sea cables and associated equipment that will convey electricity from offshore generating stations to the shore have been developed by generator-developers. Careful consideration has therefore been given to the specific arrangements that will need to be put in place for offshore projects that are already completed, will be completed or will be well developed by the time the new regime goes live. Ofgem will be running a competitive tender process to select the holders of offshore transmission licences in respect of these transmission assets.
For these projects, once an offshore transmission licensee has been selected under the tender exercise, any transmission-related property, rights and liabilities held by the generator-developer or other relevant asset owner must be transferred or made available to the offshore transmission licensee within a reasonable time. This will enable the licensee to perform its licensed and statutory obligations and convey the electricity generated to the onshore network. Schedule 2 enables the authority, in certain circumstances, to make a scheme transferring property, rights and liabilities from the existing owner to the successful bidder for the offshore transmission licence.
We expect that it will be in the relevant parties’ interest to reach a commercial agreement as to the terms of the transfer. In most cases, therefore, we would not expect the authority to be asked to use the powers set out in the schedule to make a property scheme. However, the power to make a property scheme will help to ensure the efficient and timely transfer of property, rights and liabilities from the owner of the assets, usually a generator-developer, to the successful bidder for the offshore transmission licence if they cannot reach an agreement through commercial negotiations. This will provide certainty and reassurance to tender participants for certain transitional projects. It will also help ensure that the parties involved are not placed under undue pressure by a third party seeking unreasonable commercial advantage.
I shall highlight a few key features of the property scheme. The authority may make a scheme only upon application and the scheme provisions must be necessary or expedient for the offshore transmission licence holder to perform its functions. There are also provisions in the schedule covering compensation, protecting third-party interest and an appeals mechanism.
We believe that the compulsory property scheme will be used only in a small number of circumstances, and consider that the existence of the powers will now encourage parties to seek fair commercial negotiations where otherwise they might not do so.

Question put and agreed to.

Schedule 2 agreed to.

Clause 41

Duty to submit a funded decommissioning programme

Malcolm Wicks: I beg to move amendment No. 25, in clause 41, page 37, line 5, at end insert—
‘(c) activities preparatory to the matters mentioned in paragraph (b);’

Joan Humble: With this it will be convenient to discuss Government amendment No. 26

Malcolm Wicks: We now turn to a series of clauses that relate to nuclear energy—and I hope, with your permission Mrs. Humble, that before I go into the details of this amendment, the Committee might find it helpful if I briefly set out the context behind this chapter.

Joan Humble: Order. The Minister may make a very brief introduction because there are several clauses all on the nuclear programme, but I advise that it is a brief introduction so that it does not generate a wider-ranging debate on the clause. Members will have the opportunity to discuss individual matters in each of the following clauses.

Malcolm Wicks: I will be brief.
We are creating a framework for ensuring that the operator of a new nuclear power station is responsible for, and makes prudent provision to meet, the full costs of decommissioning and their full share of waste management costs. By full decommissioning costs, I mean the costs of dismantling the nuclear power station at the end of its generating life, removing all station buildings and facilities and returning the site to a state agreed with the regulators and the planning authority, and the release from the control of the nuclear site licence. This is likely to be a state similar to greenfield, depending on the state of the site before the construction of the station. By full share of waste management costs, I mean the costs that are directly attributable to disposing of new-build higher activity waste in a geological disposal facility, a contribution towards the fixed costs of constructing such a geological disposal facility, a significant risk premium over and above those costs—to take account of uncertainties around the cost of constructing such a facility and the time when it will be able to accept new-build waste—and the cost of waste pending transfer for disposal.
Amendment No. 25 will ensure that an operator will have to set out, as part of the decommissioning and waste management plan, what activities they would undertake by way of detailed technical and operational planning for the decommissioning and waste management and disposal activities that take place once the station has ceased generating electricity for the final time. It is important that this activity can be regulated as part of the funded decommissioning programme, because it will ensure that the operator starts to think in detail in advance about how those decommissioning activities will take place. As clause 41 is drafted, the operator will be required to set out in its decommissioning and waste management plan how it will account for the decommissioning and waste management and disposal activities throughout the life cycle of the station. By making this amendment, the Government want to ensure that the operator of a new nuclear power station also makes provision for, and sets out, the preparatory activities associated with decommissioning and clean-up of the power station.
Amendment No. 26 allows the Secretary of State, if needed, to make an order that will mean that the preparatory activities specified in amendment No. 25 can become designated technical matters. A designated technical matter is one that must be provided for in the independent fund for decommissioning and waste management. It is also therefore, by definition, an activity on which an operator can spend resources from the independent fund. The effect of amendment No. 26 is to ensure that not only will preparatory activities to the decommissioning and clean-up of a power station be regulated, but that the operator must make financial provision for those activities when the station is generating electricity. I ask hon. Members to consider these technical amendments.

Stephen Ladyman: I gave my hon. Friend advance notice that when we came to this chapter, I would probe him on the rather draconian attitude that it seems to be taking. Will he explain, either now or later, what the final sentence clause 41(5) means? It states,
“and for the purposes of paragraph (a) a nuclear installation is not to be regarded as being operated at a time when it is being decommissioned.”
As something that is being operated cannot be decommissioned, that seems an unnecessary statement. Does that imply that the decommissioning programme has to include the long-term storage of the waste and the results of decommissioning a power plant, and for how long does the decommissioning programme have to allow for that waste to be stored?

Joan Humble: The hon. Gentleman’s intervention seems to relate to a clause stand part debate rather than to the amendment that the Minister has just moved. Perhaps the Minister will consider it as part of the clause stand part debate.

Malcolm Wicks: I am grateful to my hon. Friend for asking that question, and there will be opportunities to give him an appropriate answer.

Amendment agreed to.

Amendment made: No. 26, in clause 41, page 37, line 9, after ‘(5)(a)’ insert ‘or (c)’.—[Malcolm Wicks.]

Question proposed, That the clause, as amended, stand part of the Bill.

Malcolm Wicks: Where a person applies for a nuclear site licence and intends to construct a new nuclear power station—by “person” we mean a corporation as well—that person must give written notification to the Secretary of State of the application. They must also prepare and submit a funded decommissioning programme for approval.
In brief, the clause requires a programme to address three key matters. First, it requires that the funded decommissioning programme must make provision for the technical matters involved in the treatment, storage, transportation and disposal of hazardous material during the operation of a nuclear site and for decommissioning and cleaning up of a site once that station has ceased generating electricity.
Secondly, it requires operators to set out estimates of the costs of taking the steps in relation to “designated technical matters”. These matters are decommissioning, waste management and waste disposal, which take place once the station has been shut down for the last time, plus certain additional decommissioning related activities that are undertaken during the generating life of the station. The Secretary of State may specify the latter category of designated technical matters by affirmative order, which comes under clause 41(6)(a). Designated technical matters must be costed by the operator and paid for from the independent fund.
Thirdly, operators are required to set out details of the security that they will put in place to meet the costs of these designated technical matters—we have just passed an amendment that relates to that. Not all the matters relating to a decommissioning programme will be designated as technical matters. In other words, even though the operator will be expected to provide details of all the steps necessary to decommission the installation and clean up the site, he will not be required to provide cost estimates for all those steps, nor to provide security to meet all those costs.
As regards waste and decommissioning-related activities undertaken during electricity generation but that are not designated,the Secretary of State will expect payments to be made from operating expenditure at the time these expenses are incurred. An example of this could be packaging and disposal of low-level waste during the operation of a power station. At this time, the operator will have ready access to sufficient moneys to meet such costs. These costs will therefore not be subject to regulation, although the activities to which they relate will be. More information on this point is set out in the guidance, and we are currently consulting on that.
In our nuclear White Paper which was published in January, we said that the Government had determined that
“independent funds, outside of the control of nuclear operators, should be created to accumulate and manage payments from the operator to meet the full costs of decommissioning and a full share of waste management costs.”

Hugo Swire: Can the Minister tell the Committee whether this is a new stricture on the operators, or has this always happened in the past when licences have been granted? Can he also tell us how long a new-build nuclear power station is likely to last? Further, in relation to the separate fund he just mentioned, is he talking about a hypothecated fund, a deposit made by those who are granted licences to be put in an escrow account, given the fact that anything might happen over the period of operation?

Malcolm Wicks: I shall return to the hon. Gentleman on the first point. I gave a fantastic answer to his planning question earlier while he was absent, but I cannot immediately give him a fantastic answer to that point. I also want to make sure that I fully understood the question about whether this is a new power. We have not built any nuclear power stations in recent times. Our main concern here is to ensure that the companies pay the full cost—over the whole life cycle of nuclear generation and decommissioning—and that there is a properly protected fund that is separate from the normal accounts of the company and that can be used for this purpose in due course. That is the nature of our policy.

Charles Hendry: Is it not the case that the distinction is that the last nuclear power stations to be built were constructed by the industry when it was nationalised? Therefore, by definition, the Government would have taken on responsibility for the waste at the time those stations were being planned and built. The difference now is that one is looking at the private sector to do that and therefore new obligations on the industry are necessary to make sure that they dispose of its own waste and cover the associated costs.

Malcolm Wicks: I am grateful to the hon. Gentleman—that is the essence of the point. The Government certainly now take on the responsibility of the nuclear legacy—for disposing of that waste and for funding its disposal. It is a different ball game. When it comes to moving forward that will depend on private sector investment.

Stephen Ladyman: Before my hon. Friend moves on—

Malcolm Wicks: I do not think I have moved on, but I am quite happy not to be moved on.

Stephen Ladyman: I think my hon. Friend just moved on. I will just play back to him what I think he said so that he can clarify it to me. I think he said that when one of these new power plants is operated, the person operating it will be making money, so we know that they will have this money to manage the site. We are not too worried about that, but when he turns the plant off, he stops making money. We must therefore ensure that he has some money put aside to cover the long-term costs. The question is how long do we expect him to plan for those long-term costs. We have just been through a chapter dealing with carbon capture and storage and we said that there will come a time when the state takes responsibility for the liability. At what point will the state be liable for radioactive waste? I believe that the state should take responsibility for it at some point.

Malcolm Wicks: I better understand my hon. Friend’s concern. Our principle and endeavour is to ensure that companies pay the full costs of the nuclear energy facility that they have brought into being. That includes their forecasts of final deep geological disposal. We are consulting on where that deep geological disposal might be, but we intend for the operators to pay the full costs. Deep geological disposal will not only be there for the legacy of nuclear waste, which is a state responsibility, but it will have to be bigger to ensure that it can take the new waste too. The operator will pay the full costs of extra space, and it will also be charged to ensure that it also pays for some of the infrastructure of the disposal facility. Once that is done, the responsibility of the company ends and that of the state takes over. Has that helped my hon. Friend?

Stephen Ladyman: It is very helpful. Let me ensure that I understand it. The operator will have paid something towards the cost of creating the depository and the cost of transporting the material and putting it safely there. At the point at which the waste is put in the long-term depository, the liability ends and the state takes over.

Malcolm Wicks: Yes, that is our plan.
The hon. Member for East Devon asked how long a nuclear plant might exist for. Our planning assumption is 40 years. That might be a conservative assumption for the purpose of cost estimates, and it would be open to new-build operators to suggest and make the case for alternative station lifetimes in their funded decommissioning programme. The Secretary of State will consider alternatives on a case-by-case basis. However, the planning assumption is 40 years.

Martin Horwood: In terms of the operation of the site, is not the planning assumption for the current generation of nuclear power stations that the sites will remain contaminated and will effectively still be in the process of final decommissioning for something closer to 100 years?

Malcolm Wicks: I answered the question because I was asked how long the nuclear reactor might be up and running. As I said, our planning assumption is 40 years, and I have explained that there could be some flexibility around that. It might be a conservative assumption. Of course, after that, it will take much longer for the site to return to an original greenfield state—that brings us to a range of technical issues about interim storage and so on. The hon. Gentleman is right to imply that once the generator is switched off, things do not magically return to normal the next day.

Brian Iddon: The hon. Member for Cheltenham implied that the site would be left contaminated. That is surely not the point; it would not be left contaminated by radioactive waste.

Malcolm Wicks: Of course, it will not be left contaminated, but I was conceding the point that, after 40 or 50 years, there will be a period before the site can safely be returned to greenfield or whatever. That will be for a number of years and there are issues about interim storage and so on However, obviously no one will leave the site contaminated; that would not be allowed. Both the hon. Member for Cheltenham and my hon. Friend were right—I am feeling generous.
I was asked about the new regime. The hon. Member for Wealden helped me to answer the question. The Health and Safety Executive requires operators to make provision for decommissioning activities. This is part of licence condition 35, as the hon. Gentleman knows and as it says here helpfully and in some detail. These new provisions make it a requirement for operators to set aside funds to decommission the plant and manage waste.
All that has been so exciting, I am trying to remember where I was. I think I was trying to make a speech on clause stand part. This is what I was about to say—after those very useful interruptions. As set out in draft guidance, independent funds are the primary form of security that the Secretary of State would expect to see put forward in a programme to meet the operator’s decommissioning, waste management and waste disposal costs in accordance with clause 41(7)(c). Clause 41(8) allows the Secretary of State to charge a fee to the person submitting the programme. This will allow the Secretary of State to recover the costs of considering the programme, including obtaining advice to verify certain aspects. It is important that the Secretary of State can rely on this verification because of the level of detail that will be expected in a programme.
Where the licence holder of a power station changes, the prospective licence holder will have to submit a programme to the Secretary of State for approval. The prospective licence holder must obtain approval before he takes over the operation of the station. This will ensure that there is a funded decommissioning programme covering the station at all times.
Debate adjourned.—[Alison Seabeck]

Adjourned accordingly at one minute past Three o’clock until Tuesday 4 March at half-past Ten o’clock.